Duterte’s fuel tax hike gains support

The plan to hike the excise tax on diesel has gained support from civil society as well as a former Department of Finance (DOF) chief.

In a statement on Tuesday, the DOF said former Secretary Margarito B. Teves and the Action for Economic Reforms (AER), Tax Management Association of the Philippines (TMAP), and Washington-based International Tax and Investment Center supported the proposed tax hike under House Bill (HB) No. 4774, which also contained the Duterte administration’s first comprehensive tax reform package.

HB 4774 filed by House ways and means committee chair and Quirino Rep. Dakila Carlo E. Cua last month contained the DOF’s proposal to lower personal income taxes, broaden the value-added tax base by cutting down on exemptions, increase excise taxes on petroleum and automobiles, as well as reduce the estate and donors’ tax rates.

To make up for losses as a result of the personal income tax cuts, Cua’s bill proposed to boost the collection goal via revenue-boosting measures, including a staggered increase in the diesel excise tax from zero to P6 per liter over a three-year period from the second half of 2017 up to 2019. The diesel excise tax would then be adjusted by 4 percent beginning 2020 to account for inflation.

“Strictly on the proposed excise tax on fuel products, I support the staggered increase as proposed by the Department of Finance,” the DOF quoted Teves as saying.

AER added the higher taxes on oil products “is not just about compensating for the loss from the personal income tax reform but also, together with other excise taxes, is the most effective way in the generation of domestic resources.”

This was because the burden would fall on heavy users of fuel, specifically the richest 10 percent of the population, it said.

TMAP president Maria Lourdes P. Lim added the proposal to increase excise taxes, specifically on diesel, “is a compensating revenue measure that would not adversely have an effect on poor and marginalized sectors of the society because fuel prices are expected to be low in the next several years.”

The DOF said both Teves and Lim suggested considering indexing fuel excise taxes to the actual inflation rate in 2020, instead of slapping a flat rate.

Finance Undersecretary Karl Kendrick T. Chua said the DOF “is open to this suggestion and will restudy its numbers.”

Chua said the government’s tax reform package specifically wants to  suspend any rate adjustment if and when global oil prices hit $100 per barrel. He said this was to prevent excessive and undue increases in the cost of petroleum products.

“Pegging the suspension of the tax at $100 per barrel is a ‘psychological barrier’ meant as a safety measure to ensure that fuel excise taxes do not increase indefinitely,” Chua explained, adding that “the figure of $100 reflects the average between the peak of Dubai crude price in 2011 of $130 per barrel and a peak low in the last five years of around $60 per barrel.”

He clarified, however, this was just to safeguard the tax system.

He said world prices could not possibly reach $100, or even $80, in the near future.

He said there were three reasons: “The price of global crude has been much lower than 10 years ago because of the growth slowdown in China, which has significantly reduced demand; the discovery of shale oil provides the world market with an alternative supply in the future; and the Organization of Petroleum Exporting Countries (Opec) is unlikely to abruptly cut supply to boost profits because a more important consideration for its member-countries is retaining their market share rather than revenues.”

“So given these reasons, the World Bank, the International Monetary Fund and many international organizations project that in the next three years, we will have oil at $50-$60 per barrel,” he said.